A budget
process is a system of rules governing the decision-making that leads to a
budget, from its formulation, through its legislative approval, to its
execution.

More definitions

BBudget = Quantitative expression of a plan

A
plan expressed in monetary terms, prepared and approved prior to the budget
period and which shows income expenditure and the capital employed. It may be drawn showing
incremental effects on former budgeted figures or complied by zero budgeting.

Budgets are
therefore not prepared in isolation and then filed away but are concrete
components of what is known as a budgetary control system. Such a system
essentially ensures communication, coordination and control within an
organization. The basic functions of management are allocation of resources,
planning and control.BBudgets involve – Planning & Control

·Budgeting in
Context

·A budget helps

·Why use a
budget?

·Stay within a
limit

·Control

·Forecasting

·Delegate

·Prioritise
Wants, Organise Needs,

·Within the realm
of what we Can

PURPOSE OF A
BUDGET

·Co-ordination-
Important for the achievement of organization goals e.g.

·Coordinate
inputs and outputs in order to ensure balance of efforts and effects.

·Coordinate
budget lines within the organization to ensure effective implementation of plans and monitoring of results.

·Coordinate
responses to economic trends and challenges posed by the environment within
which programmes and activities are undertaken

PREPARATION OF
THE BUDGET

1.
Identify objectives

2.
Gather data about alternatives

3.
Select alternative courses of action

4.
Discuss the plans/activities and allocate the budget.

5.
Establish monitoring mechanisms.

6.
Respond to problems encountered in the previous budget.

Communication: The budget is
used to communicate plans and to control information. Once formulated the
aspects of the plan having a bearing on a particular division of the
organization are communicated to that division.

Motivation:
The
budget seeks to motivate managers to achieve objectives and thereby establish
control within the organization

Performance
Evaluation:
a budget is used to evaluate the capability of managers to achieve targets.Good
performance is associated with achieving better performance targets set on
costs of operations and benefits to the organisation.

Authorization: The budget is
used to authorize expenditure or to
pursue certain initiatives once a budget is approved:

Top-Down
Budgeting is the term given to a budgeting process based on estimating the cost
of higher level tasks first and using these estimates to constrain the
estimates for lower level tasks

A
crucial factor for successfully implementing this method for estimating budgets
is the experience and judgement of those involved in producing the overall
budget estimate.

Organisations need the ability to allow:

Financial Managers to establish centralised budgets to control
organisation spending.

Project Managers to establish projects budgets that consume the
centralised organisation budget and control project spending.

Advantages

1.Takes
less time

2.Promotes
upper-level commitment

3.Involves no multilevel participationAggregate
budget is quite accurate, even though some individual activities subject to
large error

4.Budgets are stable as a percent of total allocation
and the statistical distribution of the budget is also stable leading to high
predictability

5.Small
costly tasks don’t need to be identified early in this process - factored into
overall estimate

6.Lower
management better understands what upper management expects

7.Presented
down the ladder

Disadvantage1.Translating
long-range budgets into short-range budgets.2.Problems
scheduling projects in a "sub-optimal way" to meet the strategic
goals3.Result of top management's limited knowledge of
specifics of project tasks and activities4.Competition
for funds among lower-level managers, try to secure adequate funding for their
operations.5.May
cause unhealthy competition.6.This process is a zero sum game--one person's or
area's gain is another's loss.7.Subordinate
managers often feel that they have insufficient budget allocations to achieve
the objective

Bottom Up Budgeting

Sometimes
called Zero Based Budgeting

Bottom-up budgeting begins with identifying all the constituent tasks
that are involved in implementing a project and working out the resources and
funding required by each

Provides the opportunity to create organisation level budgets by rolling up project budgets